With tax law change affecting Roth IRA conversions beginning in January 2010, much is being made of Roth conversions. It is important to note that annual contributions to a Roth IRA may also make sense. As with the traditional IRA, the most one individual can contribute to a Roth IRA for 2009 and 2010 is $5,000 each year. These limits are $1,000 higher for individuals age 50 or older. The most a married couple filing taxes jointly can contribute for 2009 or 2010 is $10,000. These limits rise to $12,000 if both individuals are age 50 or older.
How much you may contribute is limited for those above certain income levels:
- If you are single, head of household or married filing separately and did not live with your spouse, you are allowed to contribute the full amount as long as your adjusted gross income (AGI) does not exceed $105,000 in 2009 and 2010. Participation in employer retirement plans does not limit your participation as it does in a traditional IRA. The Roth contribution is phased out as your adjusted gross income exceeds the yearly limit. At $120,000 in 2009 and 2010, your allowed contribution drops to $0.
- If you are married and you and your spouse are filing taxes jointly, your limit on adjusted gross income is $167,000. At $176,000 in 2009 and $177,000 in 2010, your allowed contribution drops to zero. Between these limits, you must reduce your contributions accordingly (the IRS has publications to help you calculate this). Participation in other qualified retirement plans is not a barrier.
- If you are married, lived with your spouse and are filing separately, you are allowed to contribute up to the maximum as long as your AGI does not exceed $10,000 per year. Between zero and $10,000, your ability to contribute is slowly phased out. Participation in other qualified retirement plans is not a barrier.
You may simultaneously contribute to a traditional IRA, as long as the total placed into both accounts does not exceed the yearly limits. If you are married, the same amounts may be contributed for each of you to a spousal IRA.
A six-percent tax is charged on excess contributions (contributions over the legal maximum) to the account. This tax will apply to each year that the excess remains.
To determine how much you may contribute to your Roth IRA, use Worksheet 2-2 in IRS Publication 590. Always consult a tax advisor with questions specific to your situation. iBi